Western banks and businesses brace for new sanctions after Vladimir Putin’s full-scale invasion of Ukraine

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Western companies operating in Russia and Ukraine are bracing for the potential impact of new sanctions after Russian President Vladimir Putin announced a military operation in Ukraine’s Donbass region.

Major oil companies – including BP, Exxon Mobil and Shell – all have substantial investments in Russia, as do brewing giant Carlsberg A/S and automaker Renault.

On Feb. 23, the chief executive of Stellantis, the automaker behind the Jeep, Dodge and Peugeot brands, said it was prepared to move or limit production of its vehicles to Russia if Western sanctions disrupted those operations.

The relatively small size of the Russian and Ukrainian economies and the perceived difficulty of doing business there means that exposure to these countries from multinationals outside of the commodities industry is low. But some large Western conglomerates have established businesses in both.

Several major Western banks, including Citigroup and JPMorgan, do business in Russia. If local lenders or individuals are sanctioned, these banks should quickly cut ties with them. So far, the sanctions imposed by the United States, the European Union and the United Kingdom have been more limited, targeting a handful of small Russian banks and individuals. Cross-border payments, including debt service, could be frozen. This could mean unwinding sometimes complex transactions and possibly losing money if, for example, banks get stuck with unpaid debts. Spokespersons for Citi Group and JPMorgan declined to comment.

READ Citi, Dentons and Baker McKenzie plan to recruit staff in Ukraine

Large European banks such as Societe Generale in France and UniCredit in Italy, which are local lenders in Russia, could also see default rates increase if the Russian currency devalues ​​significantly and the economy weakens. significantly weakens. A Societe Generale spokeswoman said the bank’s Russian operations accounted for around 2% of the group’s total revenue and net profit last year. UniCredit did not respond to a request for comment.

In Ukraine, ArcelorMittal SA operates one of the largest steel mills in the country and has some 29,000 local employees and contractors. The company is currently investing $300 million to upgrade the plant. Earlier this month, ArcelorMittal said it had contingency plans in place should the situation in Ukraine worsen.

Danish brewer Carlsberg has three breweries in Ukraine and is the country’s biggest beer seller, with a 32% market share, the company said. The world’s third-biggest brewer recently said it had been working on contingency plans for several weeks, but declined to provide details given the uncertainty. Carlsberg also has a large business in Russia, where it owns eight breweries. Sales in the country generate about 10% of the company’s overall revenue, according to the company.

French food and beverage giant Danone has two manufacturing plants in Ukraine, in the north and east of the country. Pall Mall manufacturer British American Tobacco has a factory in Ukraine that employs around 1,000 people. Building materials company CRH PLC, a blue-chip Irish company, has five manufacturing plants in the country and has operated there since 1999. All three companies declined to comment.

According to analysts, the most exposed among the oil and gas majors is BP. The company owns a 19.75% stake in Rosneft Oil, and its two current and former CEOs sit on the Russian company’s board. JPMorgan estimates that around 9% of BP’s net asset value is exposed to Russia, compared to an industry average of 5% in Europe.

Shell has a 27.5% stake in a major offshore gas project in Russia’s Far East, 50% owned by Russia’s Gazprom PJSC, which supplies around 4% of the world liquefied natural gas market.

BP and Shell declined to comment. In recent weeks, leaders have said they will comply with any new sanctions that may be implemented. Exxon and France’s TotalEnergies SE also hold significant stakes in energy projects in Russia. TotalEnergies declined to comment and Exxon could not immediately be reached for comment.

Commodities group Glencore has a 10.55% stake in EN+ Group PLC, the majority shareholder of aluminum company United Rusal. Glencore also has a small stake of less than 1% in Rosneft.

Last week, Glencore chief executive Gary Nagle said the stakes were “very intangible in the grand scheme of things” and that the company’s business division, which he calls marketing, could benefit from any Russian forays. . Such an event “would cause severe disruption in some commodity markets, severe dislocations and that’s where our marketing really thrives,” Nagle said.

Away from commodities, French automaker Renault SA is one of the most exposed to the Russian market, with around 8% of the company’s profits before interest and taxes generated in the country, according to a Citi study.

READ Boris Johnson sanctions five Russian banks, three oligarchs: “Putin’s business in Ukraine must fail”

Renault CEO Luca de Meo told analysts Feb. 18 that an escalation of tensions between Russia and Ukraine could lead “to a new supply chain crisis related to parts that are expected to come from the foreigner”.

Renault has two plants in Russia, one in the town of Togliatti and the other in Izhevsk, 700 miles east of Moscow. Renault executives said 90% of vehicles produced in Russia were for the local market and the company was largely financed locally.

Yet Russia is one of Renault’s biggest markets. Alongside its partner Nissan Motor, the French manufacturer bet on the Russian car market by taking a majority stake in AvtoVAZ, the former public manufacturer Lada, in 2014.

Stellantis CEO Carlos Tavares said he was unsure at this time how Western sanctions would affect his company’s car plant in Kaluga, 185 km southeast of Moscow. Since December, the facility has ramped up production for exports to Western Europe amid growing demand.

“If we can’t supply the factory, if that’s the reality, we either have to transfer that production to other factories or just limit ourselves,” Tavares said.

—Patricia Kowsmann and Jenny Strasburg contributed to this article.

Write to Alistair MacDonald at [email protected] and Nick Kostov at [email protected]

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